Private markets have slowly become a core part of how investors think about building long term wealth. As public markets grow more crowded and return dispersion tightens, private market exposure becomes increasingly attractive.

Global private market assets under management reached approximately USD 13.1 trillion in 2024 and are projected to exceed $20 trillion by 2030 (McKinsey, 2025). That growth reflects a shift where institutional and wholesale capital for family offices is being deployed towards assets that offer differentiated return profiles, lower correlation to public markets and access to unlisted parts of the economy.

However, these benefits come with meaningful tradeoffs that investors must understand before allocating capital.

The rewards

Higher Return Premiums

One of the main reasons investors go private is the return premium. Private equity has historically delivered net annualised returns of around 14-16%, compared to approximately 9-11% for global public equities (Cambridge Associates, 2024). That gap has moved at times, but it remains meaningful across full market cycles.

Private credit has also delivered consistently, with senior secured private lending producing annualised returns in the 8-12% range over the past decade, which is well above public fixed income benchmarks (Preqin, 2025). In a world where traditional bonds struggled to keep pace with inflation, that spread has drawn significant attention from institutional and wholesale investors alike.

At what cost? Illiquidity.

The return advantage in private markets is compensation for illiquidity. This is appropriate for investors such as SMSFs or family offices managing generational capital that do not need daily liquidity. Academic research also proves the existence of an illiquidity premium in the range of 2-4% per annum above comparable liquid assets (RPC, 2024).

Lower correlation to public markets

Public equities and bonds can move together during inflationary periods, when rising interest rates hurt both asset classes at the same time. The 2022 selloff illustrated this sharply, as the traditional 60/40 portfolio, a mix of 60% equities and 40% bonds, posted its worst year since 1937, with the S&P 500 falling 18.1% and the Bloomberg Bond Aggregate declining 13% simultaneously as central banks tightened aggressively (Morgan Stanley, 2023).

Private credit portfolios, by contrast, continued generating stable income through the same period. According to the Cliffwater Direct Lending Index, the most widely used benchmark for private credit, the asset class has recorded only one negative year across its entire 20 year history, and 2022 was not it (Cliffwater, 2026).

This is because these assets earn returns through contracted cashflows and lending spreads rather than market sentiment or multiple expansion, giving them a fundamentally different behaviour during rate-driven stress (J.P. Morgan, 2026).

The risks

Illiquidity is a double edged sword

The same illiquidity that generates a premium can become a liability when circumstances change, Capital committed to a private fund is typically locked for seven to ten years. If an investor’s financial situation shifts through medical costs, divorce or some other unexpected liability, accessing that capital early is either impossible or comes at a significant discount through secondary market sales.

Secondary market liquidity has improved materially in recent years, with global secondary transaction volume reaching a record USD $162 billion in 2024 (Jeffries, 2025). It is still, however, the buyer’s market, and sellers must accept discounts of 10-20% or more to exit before maturity.

Valuation

Unlike public markets where the price changes continuously, private assets are valued periodically using models and manager assumptions This introduces subjectivity as two managers holding similar assets can report materially different valuation depending on their methods.

More importantly, manager selection matters enormously in private markets. In public markets, most fund managers are buying from the same pool of listed stocks at the same publicly available prices, so the gap between the best and worst performers is relatively narrow. In private equity, the gap is far wider. The difference in annual returns between the best performing funds and the worst performing funds can be as wide as 15 to 20

percentage points, meaning a top manager might return 20% per year, while a bottom manager returns as little as 3 – 5% on the same capital (Hamilton Lane, 2025).

Fees and complexity

Private market structures are typically more expensive than their listed alternatives. Most private equity and credit funds follow the model of a 2% annual management fee on committed capital plus 20% of any profits generated above a minimum return threshold (EQT, 2024). Understanding how this works in practice requires a level of document literacy that most retail investors simply do not have, and this can have them pay more fees than profit made.

Finding the balance

Private markets offer advantages for investors who understand what they are getting into. They provide access to a return premium, diversification benefits and access to a quality deal flow.

Those benefits, however, come with some pretty heavy tradeoffs: illiquidity, valuation complexity, high manager dispersion and fee structures that reward informed negotiation. For wholesale investors in Australia navigating the private markets landscape, the key is not whether to allocate, but rather how to allocate thoughtfully, with eyes open to both sides of the equation.

Our Services: Capital Raising Advisory | M&A Advisory | Debt Restructuring & Structured Solutions | Strategic Transaction Advisory | Australian Equities & Public Markets | Private Credit | Structured Finance | Early Stage & Pre-IPO |

Disclaimer

Vitti Capital Pty Ltd (ABN 13 670 030 145) is a Corporate Authorised Representative (001306367) of Point Capital Group Pty Ltd (ABN 41 625 931 900), the holder of Australian Financial Services Licence number 518031. This communication contains general information only and does not take into account your objectives, financial situation, or needs.

Before acting on any information, you should consider whether it is appropriate to your circumstances. We recommend you seek personal financial advice before making any investment decision.

If you have not previously received a copy of our Financial Services Guide (FSG), it is available free of charge by contacting us or via https://vitti.capital/fsg/

Past returns do not always indicate future returns and there is always a risk of loss when trading and investing. Our Privacy Policy is available at https://vitti.capital/privacy-policy-2